Capital Gains Tax on Sale of Property in India — Rates, the Indexation Choice and Exemptions

Selling a flat, a plot or a shop is usually the largest single transaction a family does, and the tax on it is decided by a handful of choices — holding period, which rate you elect, whether you reinvest, and when. Get them right and the tax can legitimately fall to nil. Get them wrong by a few weeks and it does not. Here is the whole picture for a sale in FY 2025-26.

Short answer

Short answer: hold immovable property for more than 24 months and the gain is long-term, taxed at 12.5% without indexation. If you bought before 23 July 2024 and you are a resident individual or HUF, you may instead compute at 20% with indexation and pay whichever is lower — an option NRIs do not get. Sell within 24 months and the whole gain is short-term, taxed at your slab rate with no exemptions available. Sections 54, 54EC and 54F can reduce a long-term gain to zero if you reinvest in time.

Long-term or short-term?

• Immovable property — land, building, flat — is long-term after more than 24 months of holding. The clock runs from the date of acquisition to the date of transfer.
• For an under-construction flat, the holding period is generally counted from the date of allotment rather than possession — a distinction worth confirming with your paperwork, because it often moves a sale from short-term to long-term.
• Inherited or gifted property: your holding period includes the previous owner's, and their cost becomes your cost. Inheritance itself is not a taxable transfer; the tax arises only when you sell.
• Short-term gains carry no indexation, no concessional rate and no 54/54F exemption. The only planning lever left is timing the sale.

Computing the gain

1. Start with the sale consideration — or the stamp duty value if that is higher by more than the tolerance the law allows. Selling below circle rate does not reduce your tax; it usually creates a second problem for the buyer as well.
2. Deduct the cost of acquisition. For property acquired before 1 April 2001, you may substitute the fair market value as on 1 April 2001, supported by a registered valuer's report.
3. Deduct the cost of improvement — genuine capital additions, not repainting and repairs. Keep the bills; this is the head most often disallowed on scrutiny.
4. Deduct transfer expenses: brokerage, legal fees, stamp duty and registration you actually bore on the sale.
5. What remains is the capital gain. Only now do you choose the rate, and only then apply any exemption.

12.5% or 20% — the choice that survives

The Finance (No. 2) Act 2024 moved long-term property gains to a flat 12.5% and withdrew indexation. A narrow concession survived: where the property was acquired before 23 July 2024, a resident individual or HUF may compute the tax both ways — 12.5% without indexation, and 20% after indexing the cost — and pay the lower amount.

• The comparison is arithmetic, not preference. Long-held property bought cheaply decades ago usually wins under 20% indexed; property bought recently, with little inflation to index, usually wins at 12.5%.
• The option is not available to NRIs and OCIs, and not to companies, firms or LLPs. An NRI selling an inherited family property computes at 12.5% flat even where a resident sibling selling an identical share could elect the indexed route.
• Property acquired on or after 23 July 2024 has no choice at all — 12.5% without indexation, full stop.
• Run both computations before signing anything. The difference on a long-held Ahmedabad property is routinely several lakh rupees, and it is decided entirely by arithmetic you can do in advance.

Sections 54, 54EC and 54F

• Section 54 exempts the capital GAIN to the extent reinvested. Section 54F is stricter: it requires the NET SALE CONSIDERATION to be reinvested, and gives only proportionate exemption if part of it is not.
• 54EC bonds carry a five-year lock-in. Transferring them, or even taking a loan against them, within that period withdraws the exemption and the gain becomes taxable in the year of the breach.
• Section 54 and 54EC can be combined on the same sale — reinvest part in a house and part in bonds, within their respective limits and windows.
• The six-month window for 54EC is genuinely short and is measured from the date of transfer, not from when the money reaches you. If your sale completed in March, the window may close before you have finished celebrating.

Not reinvested yet? The CGAS deadline

Reinvestment windows run for years, but the tax return does not wait. If the new property is not bought or constructed by the due date for filing your return under section 139(1), the unutilised gain must be deposited in a Capital Gains Account Scheme account with an authorised bank before that date — otherwise the exemption is simply lost, even if you buy the house a month later.

TDS, and what the buyer deducts

• Resident seller: the buyer deducts 1% TDS under Section 194-IA where consideration or stamp duty value is ₹50 lakh or more. It is an advance against your final liability, not the tax itself.
• NRI seller: Section 195 applies instead — deduction at capital-gains rates on the sale value, with no ₹50 lakh threshold — unless a lower-deduction certificate under Section 197 is obtained first. The gap between the TDS and the actual tax is often several times the real liability, refundable only after filing.
• Report the sale in Schedule CG of your return for the year of transfer, whether or not tax is payable after exemptions. Registrar data is matched against returns; an unreported sale surfaces on its own.
• Reconcile the TDS credit against Form 26AS and AIS before filing — a mismatch here is the usual cause of a refund stalling for months.

Where sellers lose money

• Selling just short of 24 months and converting a 12.5% gain into slab-rate tax.
• Missing the CGAS deposit before the filing due date, losing an exemption that was otherwise fully earned.
• Assuming the 20% indexed route is available when the seller is an NRI, and budgeting tax that is not actually payable at that figure.
• Treating repairs and interiors as cost of improvement without bills, then losing the deduction on scrutiny.
• Letting the buyer deduct 20%-plus TDS on an NRI sale when a Section 197 certificate could have aligned it with the real gain from the start.
• Signing at below circle rate to save stamp duty, and finding the difference taxed in both the seller's and the buyer's hands.

None of this is exotic — it is arithmetic and calendar discipline. But the decisions are made when the deal is being negotiated, not when the return is being filed, which is why a conversation before you sign is worth considerably more than one in July.